Broker's commission for real estate gains tax

<em wg-1=""><a wg-2="">Decision of the Federal Court 2C_891/2017 of </a></em><em wg-3=""><a wg-4="">21 August 2019</a></em>: On 20 June 2015, A. and B. sold the property they had acquired on 12 June 2006 for CHF 1'011'000, a 4.5-room apartment in the municipality of C., for a price of CHF 1'420'000.

With regard to the eligible investment costs, the competent real estate tax commission of the municipality of C. allowed a broker's commission of 2% of the purchase price (plus VAT), while A. and B. asserted the actually paid commission of 2.75% (plus VAT).

The Commission for Real Estate Taxes of the municipality of C. relied on the long-standing Zurich practice according to which, for the entire cantonal territory, the commission of 2% of the purchase price is generally added to the investment costs and there are only exceptions for properties that are difficult to sell (up to 3%) and high sale gains (less than 2%).

A. and B. do not dispute the existence of that practice, but essentially claim that what is 'usual' in the present case has to be established in accordance with the relevant market economy conditions in the Lake Zurich region. In this region, a broker's commission of 2.5-3.5% of the purchase price is usually estimated. The practice could therefore, according to them, not cover the entire, heterogeneous cantonal territory.

The objection raised on the basis of the brokerage commission, which was only partially credited, was rejected by the Commission for Real Estate Taxes of the municipality of C. by decision of 29 August 2016. The objection was dismissed by decision of the Tax Appeal Court of the Canton of Zurich on 31 May 2017. The appeal of 10 July 2017 was unsuccessful accoring to the decision of the Administrative Court of the Canton of Zurich of 6 September 2017.

By an appeal to Federal Supreme Court on 16 October 2017, A. and B. applied for the annulment of the judgment in the first instance and thus for the crediting of the entire brokerage commission of 2.75%.

From the considerations

According to Art. 12 StHG, the cantons are free to decide which costs are counted as investment costs. The canton of Zurich has permitted the crediting of the "usual broker's commission" against the real estate gains tax in § 221 para. 1 lit. c StG/ZH . This norm is purely cantonal law, which means that the Federal Supreme Court only reviews the application and interpretation with regard to constitutionality, in particular with regard to Art. 9 BV (prohibition of arbitrariness).

Constitutionality of the Zurich practice

The Federal Supreme Court had already made a decision on the Zurich practice in BGer 2C_119/2009 from 29 May 2009. On this occasion, it came to the conclusion that, on the basis of Art. 12 of the Swiss Federal Law on Real Estate, the canton is free to design the practices with regard to the investment cost in connection with the sale of real estate. It would even be permissible not to allow any brokerage commission at all. Consequently, the Zurich practice proves to be neither non-harmonizing nor unconstitutional.

Interpretation of the term "usual"

It also had to be examined whether the Zurich practice interprets Section 221 para. 1 lit. c StG/ZH or the term "customary" arbitrarily. The Federal Supreme Court considered interpreting the term "local custom" in the same way as the civil law terms "practice" and "local use" pursuant to Art. 5 para. 2 Z GB. Art. 5 para. 2 Z GB covers locally differentiated law, whereby this is to be understood as a practice for a locally limited area. The local limitation is not to be understood narrowly. § Section 221 para. 1 lit. c StG/ZH does not use the term "local custom", but simply "customary". It is therefore certainly not possible to conclude that there is a customary practice that only covers part of the cantonal territory. From a teleological point of view, an orientation towards the market is obvious, but this does not rule out a certain schematization and generalization. Apart from this, Zurich practice provides for a certain differentiation. Thus, the interpretation of the Zurich practice proves to be justifiable and therefore compliant with federal law. Any other justifiable interpretation does not lead to arbitrariness in this practice. The Federal Supreme Court adheres to its conclusions of 2009 and confirms the constitutionality of the Zurich practice.

Hard to sell

Furthermore, A. and B. asserted that the property had been difficult to sell, which is why a broker's commission of up to 3% (according to Zurich practice), respectively a commission of 2.75% is to be credited. The lower instance essentially considered that a construction project on the neighboring property had already been known when the broker agreement was concluded. Cause for the sluggish sales were therefore not the dimension of the construction project but the sales price, which was too high in view of the construction project. It was precisely the high number of interested parties which shows that the problem was not the construction project but the price. In such a densely populated region as the Lake Zurich area, prospective buyers can always expect that building plots in the neighbourhood will be built over. The fact that, despite the high number of prospective buyers, the sale has nevertheless taken 1.5 years should, also according to the Federal Supreme Court, be the case due to the initially overestimated sales price.

Legal situation in the Canton of Lucerne

According to Lucerne practice, commissions of 1-2% for overbuilt and 2-4% for undeveloped Real Estate are customary. Exceptionally (e.g. in the case of hard-to-sell properties), commissions of 3% for built-up properties and 3-5% for unbuilt properties Real Estate are still considered customary. Following the decision of the Federal Supreme Court of 21 August 2019, even according to the published practice of the Canton of Lucerne, a sales price that is (initially) set too high cannot in principle be considered to be a hard-to-sell property.

As you can easily see, the Lucerne practice is more differentiated than the Zurich practice and therefore, in our opinion, all the more in conformity with federal law.